Asian Stocks Rise, Extending Six-Year High Ahead of Fed

Tokyo (July 30) Asian stocks rose for a fourth day, with the regional benchmark index extending a six-year high, before the Federal Reserve updates markets on monetary policy today and as the U.S. and European Union strengthened sanctions against Russia.

The MSCI Asia Pacific Index (MXAP) added 0.3 percent to 149.87 as of 8:08 p.m. in Hong Kong, with eight of its 10 industry groups rising. The gauge climbed 2.8 percent this month as it rose to the highest level since June 2008, as a gauge of Chinese manufacturing added to signs Asia’s biggest economy is stabilizing and earnings at companies including Nissan Motor Co. and Fanuc Corp. beat estimates.

“The market rally looks sustainable,” Mark Matthews, Singapore-based head of Asia research for Bank Julius Baer & Co., which oversees about $377 billion, said by phone. “The major risk factors for the market are geopolitics and the direction of U.S. interest rates. The Fed will probably start raising rates in September 2015, but it’s going to be so small that it will have a very small impact.”

Russia Sanctions

The U.S. sanctioned three Russian banks and a state-owned shipbuilder that serves Russia’s navy and oil and gas industry, joining with the European Union in escalating penalties for action in Ukraine. The EU curbed Russia’s access to bank financing and advanced technology in its widest-ranging sanctions yet over President Vladimir Putin’s backing of rebels in eastern Ukraine.

South Korea’s Kospi index advanced 1 percent, extending gains to close at the highest level since August 2011. The nation’s industrial output expanded 0.6 percent in June from a year earlier, missing economists’ estimates for a 1 percent increase, government data showed.

Japan’s Topix index closed 0.1 percent higher. The nation’s industrial output fell the most since the March 2011 earthquake, highlighting the widening impact to the economy following April’s sales-tax increase. Production dropped 3.3 percent in June from May, the trade ministry said today, more than twice the median forecast for a 1.2 percent contraction in a Bloomberg News survey of 31 economists. The yen traded at 102.29 a dollar after falling 0.3 percent yesterday.

The MSCI Asia Pacific Index traded at 13.5 times estimated earnings yesterday compared with 16.5 for the Standard & Poor’s 500 Index, according to data compiled by Bloomberg.

“Valuations don’t look cheap but they’re not terribly expensive either, so I’m optimistic on equities over the next 12 months,” Mark Lister, Wellington-based head of private wealth research at Craigs Investment Partners Ltd., which has about $6.8 billion under management, said by phone. “Growth is accelerating and central bank policies are supportive.”

Of the companies on the Asia-Pacific benchmark gauge that have posted results since the beginning of July and for which Bloomberg has estimates, 57 percent beat earnings expectations.

Earnings Performance

Honda climbed 3.1 percent to 3,658 yen. Net income will probably rise 4.5 percent to 600 billion yen ($5.9 billion) in the year ending March 31, the Tokyo-based carmaker said in a statement today. That compares with the 595 billion yen the company previously forecast and lags behind the 631.4 billion yen average of 25 analyst estimates compiled by Bloomberg.

Shinsei Bank Ltd. jumped 8.2 percent to 224 yen after the lender reported a 56 percent increase in quarterly profit to 20 billion yen, beating the average estimate of 13.4 billion yen by three analysts.

L’Occitane International SA (973) rose 5.5 percent to HK$19.42 in Hong Kong. JPMorgan Chase & Co. raised its rating on the stock to overweight from neutral after the cosmetics maker reported increased sales.

Wing Hang Delisting

Overseas Chinese Banking rose 1.5 percent to S$9.91 in Singapore, its highest close since January. The lender will delist Wing Hang after raising its ownership to 97.52 percent, the two companies said in statements yesterday.

Hyundai Heavy tumbled 9.5 percent to 152,500 won in Seoul after reporting a second-quarter loss of 489 billion won ($477.5 million), exceeding the 81.9 billion won estimate of analysts surveyed by Bloomberg.

Futures on the S&P 500 added 0.3 percent today. The U.S. benchmark index yesterday slipped 0.5 percent as President Barack Obama announced new sanctions against Russia and warned its actions in Ukraine are “setting back decades of progress,” snuffing out gains led by telecommunication stocks.

U.S. Data

Economic reports yesterday showed improving U.S. consumer sentiment while the housing market remains in a slowdown. The Conference Board’s consumer confidence index rose to 90.9, the highest reading since October 2007. Residential real-estate prices advanced 9.3 percent in the 12 months ended May, the slowest pace in more than a year, according to the S&P/Case-Shiller index of property values in 20 cities.

The Fed is expected to taper its bond-buying program for the sixth time at a two-day policy meeting that ends today. Investors will get a reading on second-quarter U.S. economic growth today, while the government’s labor report on Aug. 1 may show employers added 231,000 jobs this month.